Commerzbank Sees $18 Silver Price By Year-End In 'Positive' Environment
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“The environment for silver remains positive,” they wrote. “After breaking out of the sideways trend in which it had been trading since mid-2018, there is further upside potential for the silver price.”
Both silver and gold should benefit from expected rate cuts by both the U.S. Federal Reserve and European Central Bank, Commerzbank said. Since silver is “significantly undervalued” compared to gold, there is “catch-up potential” in silver, analysts continued.
“We are therefore revising our year-end forecast for silver up to $18 per troy ounce (previously: $16.50),” they wrote. “This would put the gold/silver ratio at 83, which roughly corresponds to its level at the start of the year.”
The gold-silver ratio measures how many ounces of silver it takes to buy an ounce of gold, with a smaller number reflecting outperformance by silver, and vice-versa. The ratio had hit a 27-year high of nearly 94 in early July. This meant silver was at its lowest level vis-à-vis gold since 1992, Commerzbank said.
“This may well be the reason why market participants, searching for lower-priced alternatives following the steep increase in the gold price, stumbled across silver again – a precious metal that had long been neglected,” Commerzbank said.
The ratio stood around 86 as of the Commerzbank report, which the bank noted is still an “extremely high level” historically. The ratio was 82 at the start of the year, and the bank said the multi-year average is 63.
“Silver is likely to make further gains next year, largely in tandem with gold. We envisage a silver price of $19 per troy ounce at the end of 2020 (previously: $18).”
Analysts said flows into silver-backed exchange-traded funds have been unprecedented. They noted that ETFs tracked by Bloomberg registered inflows of more than 1,900 tonnes of silver in the first 3½ weeks of July, which is four times as much as all of June, Inflows last month were just under 470 tonnes, which had been the highest monthly tally in around years.
“The last time there was a monthly inflow on even nearly that scale was over 13 years ago, when the first silver ETFs were launched,” Commerzbank said.
Futures speculators have also turned bullish on the metal in recent weeks after previously holding a net-bearish position, analysts pointed out.